World Economy

OECD cuts US Growth Forecast

OECD cuts US Growth ForecastOECD cuts US Growth Forecast

A stuttering recovery in the US and the continued fragility of the euro zone means that risk assets are “mispriced,” the Organization for Economic Cooperation and Development warned on Monday, CNBC reported.

The OECD forecast the US would grow by 2.1 percent this year, down from its May projection of 2.6 percent growth. For 2015, the group expects the US economy to grow 3.1 percent, down from earlier estimates of 3.5 percent.

The euro area has also been downgraded from 1.2 percent growth in May to 0.8 percent and 1.1 percent for next year, and the stubbornly slow growth in the region is the most “worrying feature” of the OECD’s projections.

“The recovery in the euro area has remained disappointing, notably in the largest countries: Germany, France and Italy. Confidence is again weakening, and the anemic state of demand is reflected in the decline in inflation, which is near zero in the zone as a whole and negative in several countries,” the OECD said.

 Monetary Policy

The anticipated tapering of US monetary policy could lead to shifts in international financial flows and sharp exchange rate movements, which could be particularly disruptive for emerging market economies, the OECD noted.

“A number of equity markets are reaching record highs, sovereign bond yields in several countries are near all-time lows and implied share price volatility in the United States and Europe is around pre-crisis levels,” it said. “This highlights the possibility that risk is being mispriced and the attendant dangers of a sudden correction.”

Economist Robert Shiller warned of pricey valuations in stocks last month and fellow Nobel prize-winner Lars Peter Hansen described US economic growth as “stunningly sluggish.”

Recent SEC filings also show billionaire investor George Soros has upped his bets on the S&P 500 falling.

The UK is the only country expected to grow ahead of earlier expectations, the OECD report said, forecasting 2.8 percent growth for 2015, up from 2.7 percent.

Outside Europe, Japan may need to provide more monetary easing to go alongside the planned consumption tax hike net year, the group said.